A new scheme providing consumers under financial hardship with access to affordable loans in the West Midlands has been unveiled today.
The My Home Finance scheme has been set up by the National Housing Federation (NHF) to prevent people from turning to loan sharks and other dangerous sources to obtain credit.
However, the pilot project will charge a higher rate of interest than credit unions are currently allowed to charge by law.
Credit unions can only charge up to 26.8 per cent APR under current legislation but the new lending scheme will be able to charge a maximum of 29.9 per cent APR, rising to 49.9 per cent in April.
Under the terms of the project, customers will have to attend a 45 minute interview to assess their financial situation before they are allowed to obtain up to £500 of credit. They will also be provided with debt and cash management advice and guidance on opening a bank account, according to the BBC.
NHF chief executive David Orr said: “By offering fair loans at fair prices, we hope to offer an alternative to both loan sharks, who cynically prey on hard up families, and doorstep lenders, who are all too willing to lend cash to the desperate at hugely inflated rates of interest”.
However, Mick McAteer, of the Financial Inclusion Centre, said: “While this is a welcome step, it should be put in context. We estimate there are four million people in the UK without access to mainstream affordable credit. More needs to be done to give consumers a real choice”.
The set-up capital for the project was provided by the Department for Work and Pensions, local housing associations and the Royal Bank of Scotland. Ten branches are due to be set up with four already in operation in Hereford, Worcester, Walsall and Northfield.